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President Obama: Please Call Angela Merkel ASAP
By Jeff Harding of The Daily Capitalist
Angela Merkel's Christian Democratic Union (CDU), a center-right party, with its political ally, the Free Democratic Party (FDP) won the Bundestag (lower house) elections. This has far-reaching implications for Germany. And, I think I'll win my bet about which country comes out best in this economic crash.
In August I predicted Germany would come out first from the re/depression. I based that conclusion on two things.
First, Angela Merkel made some very perceptive comments:
She is sceptical about calls for bigger public deficits and looser monetary policies – the very things that tipped the world economy into the abyss in the first place – as the way out of the crisis.
“The crisis did not take place because we were spending too little but because we were spending too much to create growth that was not sustainable. It isn’t just that the banks took over too many risks. Governments allowed them to do so by neglecting to set the necessary [financial market] rules and, for instance in the US, by increasing the money supply too much.”
[Mrs. Merkel] is robustly unapologetic when discussing the origin of the global financial meltdown. The fault, she says, ultimately lies with misguided efforts in the US, both by the government and the Federal Reserve, to re-start artificially the economy after September 11 by pumping ever-cheaper money into the financial system. “We must look at the causes of this crisis. It happened because we were living beyond our means. After the Asian crisis [of 1997] and after 9/11, governments encouraged risk-taking in order to boost growth. We cannot repeat this mistake. We must anchor growth on firmer ground.”
She nailed it. I noted at that time that Germany's fiscal stimulus amounted to about 1.5% of GDP whereas ours was more like 25% to 29% of GDP because of the long term commitments made by the government.
Second, the Free Democratic Party won 323 seats out of 614 in the Bundestag and is the CDU's coalition partner in the new government. The FDP is a pro-business, free-ish market oriented party. They have never done so well.
"You have to see it relatively to what went before," said Thorsten Polleit, economist at Barclays Capital in Frankfurt. "The FDP, which will feel very confident now, and much of the CDU will want to bring down government spending in order to cut income taxes. For corporate Germany, this is a good signal," he said.
It looks as if she will appoint FDP member Hermann Otto Solms as the new Minister of Finance. If so, then expect a reversal of her center-left policy. Solms said in an interview before the election:
“We believe that tax reductions are good for growth and employment and if you have more employees you have more taxpayers,” Solms said in an interview on Aug. 25 in his Berlin office overlooking the 19th century Reichstag building that houses parliament. A “big tax reform” is a non-negotiable demand for potential coalition talks after the Sept. 27 vote. ...
The FDP’s platform calls for simplified, lower income tax rates between 10 percent and 35 percent. Germany’s top income tax bracket is currently 45 percent and the lowest is 14 percent. The CDU wants to drop the lowest bracket to 12 percent and raise the threshold for the 45 percent rate to 60,000 euros from 52,000 euros.
The FDP also wants to revamp inheritance tax on family businesses, which Solms said “is driving lots of business people abroad.” ...
Solms says he wants to slash the number of employees (currently over 100,000) at the Federal Employment Agency; eliminate some healthcare funding; cut finance ministry staffing and end German development aid to countries like China. He said this would save a double-digit figure in billions of euros (he wouldn’t be more specific).
Germany is my lab experiment for the failure of Keynesian fiscal policies. If Germany recovers first as I think it will, then I suggest we fire Ben Bernanke, Larry Summers, and Tim Geithner and hire Mr. Solms to implement the German model instead of following Japan down the drain.
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perhaps a guillotine would suffice?
Just fire? You think the people responsible for the biggest LOOTFEST in the history of mankind should be just fired?
Merkel can say anything she wants. I have heard for years that the dollar will crash or China will sell assets or draw a line in the sand, but to date nothing has come to pass. And it's not hard to see why: No government, no matter how hard pressed or sorely tempted, is going to risk doing anything. Obama wants to declare victory & go home? Grumble, grumble, yes, but do anything to the contrary? Not on their lives!!!
It is a staring contest & we are all going down together. The world will be the victim of the next Goldman/Wall Street hairbrained scheme.
When Merkel stood out against the QE herd earlier this year I became a staunch admirer. But my real reason for commenting here now is to test my just-allowed ability to post here. ZH has determined that I am not spam!
as someone living in germany, i certainly will enjoy "mehr netto vom brutto" if westerwelle manages to convince merkel to cut taxes swiftly and broadly. there are no gurantees tax cuts will occur, and if so, anytime soon.
axel weber, president of the bundesbank, said today that germany will have to cut spending (basically reduce the size of government) in order to make the tax cuts worthwhile without further burdening the fiscal debt.
with the way the system is already structured, any changes to reduce the status quo will cause a "beamte" rebellion. it will be interesting to see how everything plays out.
Its ironic that American Government is in the same situation that AIG and others are in and they are trying to fix those institutions. The Government is over leveraged just like the people,banks, and other institutions.
sorry, but this article is pure ad-hoc opinion-making and has nothing to do with sound analysis.
[1.] ok, germany has a more pro-free market government now than before, but
[a] has the author ever thought about the status quo in the german banking sector?
[b] has the author ever thought about who sits on the board of the different Landesbanken?
[c] has the author ever thought about what the imf published last week about the diverse "innovations"/papers with dubious value in the books of european (including german) banks?
[2.] there will be some changes in germany, but what have the FDP and the CDU/CSU politicians really to offer?
[a] there will be a radical tax reform? has the author ever followed german politics over a longer period of time in depth?
[b] has the author seen anybody who takes responsibility for the mistakes that have been made in the past? (e.g. quality of the regulators, politicans at the landesbanken)
[c] what's going on in the discussion about new regulations? have the author read any statements on this topic from representatives of the bundesbank? how about the ideas coming from cdu/csu and fdp members? no? then do it and build yourself your own opinion ...
Let's not get carried away....Angela's debt to GDP is
ratio is just as lousy as ours (we have caught up...you
can argue whether we've surpassed) and its stocks are
just as overpriced.
Interesting analysis, what is missing in the analysis is that in a five party system votes are not always cast for the party one likes most but for the party one likes most in the probably winning coalition. FDP profiting from Strauß as candidate in 1980 being the prime example. The abysmal performance of the SPD explains a lot of the rise of the smaller parties, not their programmatic efforts at promising everything to everyone. The FDP as Zahnwälte-Partei - e.g. the dentists' and lawyers' party - will never simplify the tax system.
The only problem Germany is going to face is an appreciating Euro. How do they paln to deal with that problem without using the printing press,I don't know. And would other European partners accept an ever increasing Euro against the dollar?the juries are still out,but I doubt that Rome Athens Madrid will go for something like that.
I'm with you.
What good does it do if Germany alone arises from the EU.
WWII arose because they were at the bottom.
Now they are headed for the top.
You know what they say about absolute power and tiger stripes.
Will they chose to assist their neighbor-states or will they seek to abandon the burden of the union and throw the EU into disarray?
Mother Russia wants her children back.
great question - the PIGS (Portugal, Italy, Greece & Spain) as well as a few others are in much worse fiscal shape than Germany and want lower ECB rates because they are stimulating/borrowing like the US to avoid collapse.
Germany's new coalition is going to put them at increasing odds with the rest of Europe & it will be fascinating to see how it plays out - as it will have massive implications for the Euro.
Merkel is going to be increasingly under pressure from her Euro neighbours & some domestic sources to relent.
if she does, the euro joins the $US in a race to the bottom, if she holds fast, the euro moves higher, which will hurt German exports, but a stronger Euro should allow the ECB to actually lower rates, appease the PIGS and perhaps stimulate demand (maybe even for German exports!)
This might reflect better on Germany's public than its politicians. Probably Merkel did her market research and public opinion was sufficiently strong that this was the most self-serving thing she could say.
I note disingenuity in Merkel's position, for example increasing the top tax rate from 52k to 60k, which probably represents very little real change given inflation and bracket creep. Yet this is touted as significant tax reform.
Politicians say whatever they have to. If the course of action indicated by reality happens to coincide with the course of action indicated by self-serving politics, that is fortunate for the German public.
+100, they say whatever they have to, including raising Terror Alert the whole week prior to election...
Obama has no use of the Three Stooges, he has Valerie Jarrete!!!
"In 1900 the average American worker paid few taxes and had little debt."
What nonsense! For a complete picture why not include working hours, life expectancy, net worth, etc. You will find 1900 to be a very crappy time for "the average American wokrer".
If given a choice, most working-class Americans would choose to live under the current "economic conquest" as opposed to 1900 "freedom".
Not really a valid comparison because of technological/medical advances since then.
I'm quite sure most Americans of 1900 would be aghast at the tax and government intrusiveness levels now, almost complete absence of ownership (a mortgage doesn't count), the fact that their wages and savings would now be depreciating on a yearly basis (they were on a 100-year appreciating streak in 1900), etc.
Really we are closer to "Idiocracy" than Star Trek -- a bunch of slavish droolers under a boundless nanny-state, coasting on old and invented-elsewhere technology (not to mention produced elsewhere), with the main focus of the system to keep us too docile and distracted with trivialities to rebel.
America has been conquered via economic conquest.
That is all.
America just needs to grit its teeth..
Declare the corporations bankrupt, declare the US govt bankrupt, bring back the troops, and give up the dream of world wide empire. There just isn't the oil to do so. Well, sure, there is enough in Saudi, Iran, and Iraq...
While the US has used military conquest as a strategy abroad, its leaders (read : The Elite who control the puppets in Congress, White House, courts, etc.) have used economic conquest:
"The third method can be called economic conquest. It takes place when nations are placed under "tribute" without the use of visible force or coercion, so that the victims do not realize they have been conquered. "Tribute" is collected from them in the form of "legal" debts and taxes, and they believe they are paying it for their own good, for the good of others, or to protect all from some enemy. Their captors become their "benefactors" and "protectors."
Although this is the slowest to impose, it is often quite long-lasting, as the captives do not see any military force arrayed against them, their religion is left more or less intact, they have freedom to speak and to travel, and they participate in "elections" for their rulers. Without realizing it, they are conquered, and the instruments of their own society are used to transfer their wealth to their captors and make the conquest complete. In 1900 the average American worker paid few taxes and had little debt."
Thorstein Polleit is a genius, you should read his work on the Mises website.
any specific suggestions?
Thanks for pointing out my error on the Bundestag votes. My reference article was unclear on this, but I should have figured it out.
Nice to see someone decide to step a little away from the edge, but I still think New Zealand is the better choice. They've been pretty serious laggards about shooting a series of rounds into their own feet.
Raindrops on roses and whiskers on kittens,
bright copper kettles and warm woolen mittens,
brown paper packages tied up with strings,
these are a few of my favorite things.
Cream colored ponies and crisp apple strudels,
door bells and sleigh bells and schnitzel with noodles.
Wild geese that fly with the moon on their wings.
these are a few of my favorite things.
The Von Trapps were Austrians and the lyricist Oscar Hammerstein III was an American.
Nothing German there, but it's a nice song.
Hmmm... I originally immigrated from Germany. Maybe it is time to move back. With the continually increasing tax insanity in California, the nice weather, wine country, the beach, Tahoe, etc. is becoming less and less worth it.
so you like the German's 40-50 % income tax, plus the 15% vat ?
With 40%+ (and rising fast) of the working age population currently paying NO Federal Income Tax , we will have a VAT here in the US sometime within the next 12-18 months. Count on it.
there is no reason to wait for any lab experiment to complete in order to fire the three stooges....i would do it today by using them garden party torches....
it looks like europe/canada are leaning right while the usa is lurching left like a crowd of rockefeller / rothschild funded bolsheviks....
at this point it doesn't matter though....the usa is beyond financial repair....we are 5 century rome in the pillage and plunder stage where the financial terrorists are stealing everything not nailed down as they move to richer pastures...
Indeed Comrade:)
How that "old" saying go again?
Light a banker on fire, keep him/her warm for the night. Set a banker on fire, keep him warm for the rest of his/her life.
Kinda makes you wish Hillary won the primary, doesn't it? She may resemble nurse Ratchett, but she is a mother and (still) married to a philanderthropist. Neither Golda Meir, nor Margaret Thatcher, won any beauty contests, but they were motherly when their countries needed it most (after being raped).
hillary reminds more of nurse hunicutt and
would have been as complete a disaster as the
current fraud....but at least she would have
had the merit of being a naturally born citizen....
i wouldn't call hitlery a mother unless a
hyphenated noun starting with f were attached.
from weimar to wunderbar
I would suggest firing the "Insane Clown Posse" of Summers, Geithner, and Bernanke ASAP, let's not wait for the Germans.
I do agree however, I believe that Germany will be one of the few "performers" in the coming decade. They do not lurch from boom to bust such as the USA, which has now exhausted its "booms" and must pay the piper.
There is some disingenuity to this though; it's not like German banks are all saints and didn't make any derivative plays*cough*Deutsche Bank*cough*AIG bailout*cough*
"the Free Democratic Party won 323 seats out of 614 in the Bundestag" wrong, they won about 70 seats, these 323 seats is CDU+FDP.
I think Karl Denninger just fell in love.
All hail Chancellor Merkel. She's the only politican with her head screwed on right. She has also been an adamant force against money printing and sounded the alarm bells to this disastrous QE mentality. I hope her and her country the best. They deserve it.
Econophile,
the 332 seats are for the coalition of CDU, CSU and FDP, not for the FDP alone.
The CSU is the Bavarian version of the CDU.
http://www.bundeswahlleiter.de/de/bundestagswahlen/BTW_BUND_09/ergebniss...
I would add that the EU are also engaged in QE, they are just less vocal. They printed just shy of 500 billion euros over the summer.